There are two ways to sell or buy a business: asset or stock.  There are major differences between each approach and you should carefully consider the following objectives before inking a deal.

Asset purchase

An asset-based deal tends to favor the buyer because the purchased assets can potentially generate substantial tax deductions.  These deals also work best when licenses, copyrights, trademarks or franchises aren’t involved. In the accounting world we call these “intangibles” and usually these invisible assets are not-transferable to new owners leaving a purchase of the existing business’ stock as the only option.  Let’s assume you’re purchasing a local plumbing business but the name is of little value. By purchasing the tools, vans, equipment and inventory you’re able to capture some great tax write-offs from the word go. But let’s say you’re purchasing a restaurant that holds a liquor license in a municipality that is no longer approving new liquor licenses and they’re not transferable.  Now you want to own the business that owns the liquor license. This is where a stock purchase is great.

Stock Purchase

A stock-purchase deal tends to favor the seller  because selling stock (as opposed to depreciated property) has favorable tax rates.  If you’re interested in carrying the buyer’s note for a while then a stock sale allows you to hold a loan on the sale proceeds without creating a major tax consequence.  PITFALL ALERT: selling depreciable property on installments means you have to pay tax on the entire sale in year one even though you’ll be collecting the sales price over time.  Sale the stock of the business instead and then you’ll be able to pay tax on the gain as you receive payments instead of the entire sale being taxes in the first year.  PITFALL ALERT: purchasing the stock of an existing business means you are stepping into the same shoes of the existing owner.  All known and unknown liabilities and obligations become yours as the owner. Any attorney worth their fee will make sure certain “discovery language” is included in the purchase agreement but it’s still not immunity from liability.

In summary, buyers tend to benefit more from asset-based purchases and sellers tend to benefit more from stock-based purchases.  This is just the tip of the iceberg so if you want to dive deeper send us an email!

Cheers,

iAdvisors

It's time to make your numbers mean something to you.

 

Trevor has been such an asset to my business. He is always thinking long term and setting my business up for growth and to achieve my goals. As a small business owner it's great to have the ability to outsource my accounting to someone I trust and who always has my best interests at heart. 

Julie

Julie's Eats & Treats

Meeting with Trevor provided clarity for us in determining our next steps for growing our business.  His ability to help us remove the emotions and look at the data, gave us an organized, goal oriented plan of action.  Trevor's calm, supportive demeanor made us feel capable and ready to take our next steps. 

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Empowered Living Company

We came to the firm for typical business accounting and tax service.  We went through an audit and we were so thankful for the records the firm kept over the years, but most surprising to us was how much Trevor cared about us and seeing our business succeed.  He consulted us as if our business was his own.  It is apparent to us the value Trevor's advisory services has for our business.  He has come right alongside us in strategy and planning with a true care to see us and our business succeed.  He brings a valuable financial and tax critical thinking skill set that has had a direct result in the growth of our business.

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Legend Hockey Elite

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303 Atlantic Avenue

Morris, MN  56267

 

Phone 320.589.4300

Fax 320.589.4308